Selling of Privately Owned Property

Arkie

I just joined so I may be asking a question that has already been asked.  As an individual I own thousands of books.  I would like to begin selling them on the web.  What portion of the sale goes to the "business" versus me?  What is the best way to set this type of situation up?  Any advice is greatly appreciated.Thanks!

Videography

Are you in the business of selling books?  If not then you are just selling off personal assets.

Arkie

I am considering making it a business.  If so, how do the preexisting books I own transfer to the business inventory?

MNGrillGuy

Sell them to the business for a penny.

PiperTax

If the business is going to simply be a sole proprietorship, no need to "transfer to the business inventory." Simply sell the books as you would if you were selling them personally. Then report income on Schedule C.
I could be wrong, but I don`t see many liability concerns with an online book marketing business that would necessitate forming an LLC or corporation.
Sole proprietorship seems like a good way to go in this scenario to me.

glgcpa

In order to properly compute your gain or loss from you "business activities" (I put that in quotes because you really need to make sure this isn`t just a hobby), you will have to determine the FMV of your books on the date of transfer to your business.  Then, if you sell your books for more than their FMV you will have a gain; otherwise you will have a loss.  Most people who sell their used books online have a loss.  This is why I would be very concerned about your profit motive.Simply reporting all your income on Schedule C will deny you any benefit of the cost of your inventory.

Arkie

So, I have to determine what FMV is.  This seems very arbitrary.  It seems like something alot of people would determine after the sale.  If I know the actual cost of an item that I paid personally does this factor into the business` "cost" of the item?

glgcpa

So, I have to determine what FMV is.  This seems very arbitrary.  It seems like something alot of people would determine after the sale.  If I know the actual cost of an item that I paid personally does this factor into the business` "cost" of the item?
In your case, FMV of books, could be determined by looking at the same exact title online to see what it`s being sold at, "on the date that you converted it to business property" - that would be your FMV.  Most books, with obvious exceptions like leather bond classics, depreciate in value instead of appreciate in value.  Because of this, your FMV is likely to be less than your original cost.  In addition, your sales price is likely to result in less than your FMV.  This means that it is very likely that your "business" will result in losses only.This is the reason why I stated that for a business of your type, you really need to have a sound business plan and profit motive and it better be in writing.  The reason it needs to be in writing is because it will be the first thing an IRS officer asks for if they decide to audit you under the "hobby loss rules".

drvag

why would you want to go through the trouble, expense and probable tax impact to set it up as a business of any type?  after you sell all the books, are you going to then shut down the biz or buy more books to sell?  just sell them personally and put the money in your pocket.

glgcpa

why would you want to go through the trouble, expense and probable tax impact to set it up as a business of any type?  after you sell all the books, are you going to then shut down the biz or buy more books to sell?  just sell them personally and put the money in your pocket.If the OP (original poster) was correct in that he/she has "thousands of books", then two thoughts run through my mind:This poster may actually have some rare books, which may have appreciated in value.  Even with this though, it`s hard to believe the OP will have enough of these books to show a profit for the business as a whole.The OP may be considering setting up an online business not unlike Amazon use books selling and purchasing business, and using his/her original set of books as the beginning inventory.  Obviously, in this case, the OP will also either purchase more books or have others sell their used books through his/her site for a commission.The OP may be way better off if he/she set up a private foundation or other tax-exempt entity, whereby either the books themselves and/or the proceeds from the sale of the books could go to those in need.The poster may also find, that it is much easier and less paperwork if they just donated their books to a local library.  I actually donated over 100 of my old books to my local library last month and it felt great.  They put some of them on their bookshelves and the rest they sold, as they are trying to raise money to build a new library.

Arkie

As you mentioned there are thousands of books, at least 5,000.  Many were bought in bulk purchases over the years and many area very old-back to the 1700`s.  It is about as full of range of types and eras as it possibly could be.  I would be interested in setting up a web page.  In fact my wife has already created one for me to use.  It`s just a matter of me putting it all the books into a digital inventory and posting it.  Over time, as I sell books I would like to become much more narrow in my focus of subjects.  I would also like to be a "business" to receive the discounts available and not pay the taxes at purchase time of new inventory.So, is all this thinking right?  Is all this appropriate with a sole proprietorship as mentioned above?  Thanks!

glgcpa

As you mentioned there are thousands of books, at least 5,000.  Many were bought in bulk purchases over the years and many area very old-back to the 1700`s.  It is about as full of range of types and eras as it possibly could be.  I would be interested in setting up a web page.  In fact my wife has already created one for me to use.  It`s just a matter of me putting it all the books into a digital inventory and posting it.  Over time, as I sell books I would like to become much more narrow in my focus of subjects.  I would also like to be a "business" to receive the discounts available and not pay the taxes at purchase time of new inventory.So, is all this thinking right?  Is all this appropriate with a sole proprietorship as mentioned above?  Thanks!
You stated what you would like to do:  Sell your existing inventory of books you bought personally.You stated what you wanted to do once you sold some books:  Purchase new books, narrowing your subjects, without paying sales tax.What is your profit motive?  How do you intend to make a profit?  If you do not intend to make a profit, then you are not a business - it`s either a hobby or an online garage sale.

Arkie

Sales tax would be paid on the books I sold.  I`m just saying to avoid paying sales tax by the business on the books I add to my inventory.  

glgcpa

Sales tax would be paid on the books I sold.  I`m just saying to avoid paying sales tax by the business on the books I add to my inventory.  
That`s fine and that`s what I repeated in my prior post to you.  My question remains......How do you intend to make a profit?

Videography

As you mentioned there are thousands of books, at least 5,000.  Many were bought in bulk purchases over the years and many area very old-back to the 1700`s.  It is about as full of range of types and eras as it possibly could be.
You may run into an issue with the IRS if you don`t establish the value of the books at the time of conversion into inventory.  Without a valuation or basis, they will assume that it`s all profit and you will pay income tax on all of it.  See if you can get a couple of used book stores to make an appraisal for you, and don`t be surprised if they make you an offer for the whole lot.  However, the estimates, especially if they are similar in valuation, would be a pretty substantial cost basis for the IRS.